Knight Capital Group told some clients of its market-making unit that a “technical issue” was affecting its systems and advised them to route orders elsewhere as dozens of U.S. stocks swung more than 10% Wednesday.
Knight, which helps execute billions of dollars in equity transactions every day, said the issue was confined to market making and other operations were unaffected. Its stock plunged as much as 26% as investors speculated on its role in the incident, which spurred concern that computers had distorted trading for the second time in two weeks.
Goodyear Tire & Rubber Co. rose more than 10% just after the 9:30 a.m. EDT open in New York. Manitowoc Co. gained 14%, Pandora Media Inc. climbed almost 11% and Level 3 Communications Inc. plunged 15% before the swings narrowed minutes later, according to data compiled by Bloomberg.
“All of a sudden, there was choppy trading and some stocks were halted,” Arthur Hogan, a strategist at Lazard Capital Markets LLC, said in a telephone interview. “People were scratching their heads, but it wasn’t a sense of panic. It was more curious. There’s got to be some human error here.”
Special curbs adopted after the May 2010 equity crash helped calm Wednesday’s volatility.
“An initial review by Knight indicates that a technology issue occurred in the company’s market-making unit related to the routing of shares of approximately 150 stocks to the NYSE,” according to a Knight e-mail from spokeswoman Kara Fitzsimmons.
“Knight notified its market-making clients this morning to route listed orders away,” according to the statement. “The company’s OTC securities and trading in its other businesses are not affected. The company continues to review internally.”
Knight’s market-making business traded a daily average of $19.5 billion worth of equities in June with volume of 3.1 billion shares, according to the company’s website.
The New York Stock Exchange said it was reviewing trades in 148 securities between 9:30 a.m. and 10:15 a.m. EDT, according to a statement on its website.
“At this time, we believe NYSE systems and circuit breakers operated normally during this period, and we are working with all market participants on the issue,” NYSE said in an e-mailed statement.
“As is our practice, we are closely monitoring the situation and in continuous contact with the NYSE and other market participants,” Kevin Callahan, an SEC spokesman, said in an e-mail.
Investors in three of the biggest Dow stocks witnessed repeating fluctuations on July 19, fueling speculation the moves were a consequence of computerized trading. Shares of International Business Machines Corp., McDonald’s Corp. and Coca-Cola Co. swung between successive lows and highs in intervals that began near the top and bottom of each hour.
Regulators have increased scrutiny of computerized strategies that rose to prominence in the U.S. after more than a decade of market structure reform. The SEC and Commodity Futures Trading Commission blamed a broker’s algorithm for setting into motion the events that caused the May 6, 2010, market crash that briefly erased $862 billion from U.S. equities in less than 20 minutes.